Economist Agustin Carstens praises Aadhaar, Jan-Dhan Yojana and UPI

Agustín Carstens
India’s Aadhaar is a huge asset, according to renowned economist Agustín Carstens (pictured), who also praised the Unified Payments Interface (UPI), which has lowered entry barrier for smaller firms, thus levelling the playing field.


Carstens, who is general manager of the Bank for International Settlements (BIS), is former finance minister of Mexico and former governor of its central bank.


Carstens lost out to Christine Lagarde, who was French finance minister, for the post of managing director of the International Monetary Fund (IMF).


Carstens, considered one of the most influential voices in economics, came to the Reserve Bank of India (RBI) to deliver the 17th C D Deshmukh Memorial Lecture on Thursday.


The lecture, focused on financial inclusion, said protecting the stability of the financial system encouraged financial inclusion, but globally the central banks should do more, such as embracing technology, while safeguarding the users’ interests against the flipside of technology. India, in this context, has done pretty well, according to Carstens.

He praised the Pradhan Mantri Jan-Dhan Yojana for introducing households to basic transaction accounts, while companies such as Paytm expanded the scope of banking through digital offer.


“India’s Aadhaar programme is a huge asset and one that is delivering benefits,” said Carstens.


Using the Aadhaar-enabled payments system, people in rural areas can make deposits, withdrawals, and transfers. The system allows banking correspondents to visit rural areas with a micro ATM, which can verify customers’ identities digitally and operate their accounts, he noted.


However, Carstens was cautious about unmitigated access of data by large technology firms, which don’t share the data with anyone but raises the bar so much that no other firm can compete with them.


“Data ownership is severely concentrated among a few big firms, giving them an excessive degree of market power. And, in many cases, customers are blissfully unaware of how their data is being used. Dealing with these issues is complicated by the inadequacy of existing rules,” said Carstens.


Big firms can use data to assess a potential borrower’s creditworthiness, and even a person’s reservation rate, or the highest interest rate at which a borrower would be willing to take a loan. Based on this, a big tech firm can charge higher lending rates, up to the individual reservation rates, extracting a larger share of the surplus from its customers.

“Proprietary control of data thus amplifies big techs’ market power,” Carstens said in his speech.


In this context, India and the RBI have done a commendable job in developing the UPI.

“When the market fails to provide for the public good, central banks and financial authorities can act as catalysts. Take India’s Unified Payments Interface: This facility allows both domestic and global players to develop mobile payment applications. As such, it lowers the barriers to entry, especially for smaller firms, thus levelling the playing field,” he said.


“Defining standards and deciding who should have access to data and how best to manage them are important aspects to consider. Getting the answers right could lessen the scope for regulatory arbitrage and adverse spillovers, keep markets competitive, and channel more of the benefits of innovation towards financial inclusion,” Carstens said, adding that international cooperation would be vital to ensuring that technology reshapes financial intermediation for the better.


In his opening remarks, RBI Governor Shaktikanta Das said the recent developments in fintech had given a fresh impetus to financial inclusion in the country. Exponential growth in digitisation and online commerce in India has forced policymakers to put in place a state-of-the-art national payments infrastructure and technology platform.


“The RBI is continuously aligning its regulatory and supervisory framework so that the evolution of fintech can be leveraged to widen and ease the financial access by the excluded population,” Das said.

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